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New York Attorney General Steps Up Probe Into BofA-Merrill Disclosures

JULY 2, 2011
By DAN FITZPATRICK
http://online.wsj.com/article/SB10001424052702303763404576420210182971714.html?mod=WSJ_business_whatsNews

Another headache from the financial crisis is flaring back up for Bank of America Corp.

New York state Attorney General Eric Schneiderman has issued subpoenas seeking new depositions from the Charlotte, N.C., bank's chief executive and other current and former executives, according to people familiar with the situation.

The subpoenas are a sign that Mr. Schneiderman, who became New York's top law-enforcement official this year, doesn't intend to drop the civil-fraud investigation of Bank of America begun more than a year ago under predecessor Andrew Cuomo.

Mr. Cuomo, now the governor of New York, accused Bank of America, former Chief Executive Kenneth D. Lewis and former Chief Financial Officer Joseph Price of deliberately misleading shareholders about ballooning losses at Merrill Lynch & Co. before the securities firm was acquired by Bank of America in 2008.

The Securities and Exchange Commission accused Bank of America of similar disclosure failings, which the company settled by paying $150 million without admitting or denying the allegations.

It isn't clear what Mr. Schneiderman wants to know from Brian Moynihan, who took over as CEO when Mr. Lewis retired at the end of 2009. A spokeswoman for the New York attorney general said the office "remains committed to this case and is in the process of routine discovery."

Bank of America declined to comment.

Bank of America and Messrs. Lewis and Price have denied the Merrill-related allegations in previous court filings. In one response, Mr. Lewis denounced the case as "an ill-founded attempt to lay blame where it does not belong."

"He is fighting it as he should," said a person close to Mr. Lewis. "He said: 'I didn't do anything wrong. I tried to do what the politicians wanted me to do and now they want to put me on a roasting skewer.'"

Mr. Lewis, who retired partly because of rancor over the Merrill deal, declined comment through his lawyer. Mr. Price's lawyer couldn't be reached to comment.

In addition to the civil-fraud probe, Mr. Schneiderman recently opened an investigation into the packaging of mortgage loans into securities, requesting documents from Bank of America and several other major financial firms.

The attorney general's office and Bank of America have clashed recently about how to proceed in the Merrill case. In court filings, Mr. Schneiderman's office said it intended to begin its depositions, but Bank of America asked a judge to delay any depositions until the attorney general produced certain documents disclosing communications between employees who worked with Mr. Cuomo and outside parties.

Last week, New York state Supreme Court Judge Bernard Fried ruled that Mr. Schneiderman must hand over the documents requested by Bank of America, describe the parameters of the search for the documents, and list any documents not produced on grounds of privilege. The judge also ruled that depositions wouldn't begin for 90 days.

Pressure from U.S. regulators contributed to Bank of America's decision to buy Merrill as the firm teetered in 2008. The deal was struck the same weekend that Lehman Brothers Holdings Inc. tumbled into bankruptcy.

The legal friction with Mr. Schneiderman is the latest reminder that Bank of America is a long way from shedding legal and financial wreckage of the crisis. The bank's 2008 takeover of mortgage lender Countrywide Financial Corp. culminated in this week's $8.5 billion settlement with holders of mortgage-backed securities issued by Countrywide.

Bank of America plans to incur $20.6 billion in mortgage-related charges in the second quarter. The company faces the possibility of billions of dollars in additional penalties as part of a separate settlement with U.S. and state regulators who are investigating mortgage-servicing problems.

Write to Dan Fitzpatrick at [e-mail]

http://online.wsj.com/article/SB10001424052702303763404576420210182971714.html?mod=WSJ_business_whatsNews

original post by scion